Aviva has agreed to buy Friends Life Group in a £5bn-plus deal that will create a pensions provider with 16 million UK customers.Confirming a report by Sky News on Friday, Aviva said it had reached a friendly deal to combine with Friends Life that would, if completed, reshape the landscape of the sector.
In its statement, Aviva, which has a market value of approximately £15.7bn, said the takeover would be implemented as an all-share combination with Friends Life, which has a market capitalisation of around £4.85bn.
The deal, it said, would “create the UK’s leading insurance, savings and asset management business by number of customers, with a stronger balance sheet and significantly higher cash flows, enhanced by substantial synergies, from which to accelerate dividend growth”.
Aviva added that Friends Life’s five million customers would benefit from its general, health and life insurance products, while the deal would also strengthen its own balance sheet.
Under the terms of the transaction, which values Friends Life’s shares at a 15% premium to their closing price on Friday, the smaller company’s shareholders would own roughly 26% of the combined group.
Friends Life issued a separate statement confirming that its board had agreed to recommend the offer to investors.
Insiders said Aviva was attracted to Friends Life’s strong cash-generation following a string of regulatory changes planned by the Government which will overhaul the way that annuities – which guarantee pensioners an annual income for life – are sold.
The fact that it was contemplating such a major acquisition reflected the success that Mark Wilson, Aviva’s chief executive, had had turning around the company since he took over at the beginning of last year, they added.
Mr Wilson was parachuted in to replace Andrew Moss, who was ousted following a row over his remuneration which proved acutely embarrassing to a company which itself owns one of the City’s largest fund managers.
A takeover of Friends Life has been considered likely for some time, and particularly since radical pension reforms announced by George Osborne, the Chancellor, in his Budget in March.
Combining the company with Aviva’s pension back-books would mean a consolidation of policies issued under brands such as Norwich Union and Friends Provident under one corporate owner.
Aviva’s shares closed on Friday up 1.22% at 539p, while Friends Life shares closed up 1.3% at 347.7p.
Goldman Sachs, Barclays and Royal Bank of Canada are acting for Friends Life, while JP Morgan, Morgan Stanley and Robey Warshaw are advising Aviva.
The deal will require the approval of both companies’ shareholders.